HONG KONG — China’s vast industrial, retail and construction sectors all grew a little more slowly than expected last month while inflation, already uncomfortably above the government’s target, accelerated a little further, according to official data released Tuesday.
The latest economic indicators pose a choice for Chinese policy makers: whether or not to ease up on their anti-inflation campaign of restraining economic growth — through five interest rate increases since last October — and stringent restrictions on banks’ lending.
Rising prices could make it harder for the Chinese government to cut interest rates or take other measures to stimulate the economy if weakness in the U.S. and European economies causes a slowdown in Chinese exports.
The initial assessment of private-sector economists was that inflation remained a greater threat to China’s economic health than slowing output. They predicted that the central bank would not ease policy but might slow the pace of further interest rate increases while watching the effect on Chinese exports of steep drops in stock markets and of any signs of further economic weakness in the United States and Europe.
“Despite current turmoil in international financial markets, domestic inflationary pressures remain high,” Qu Hongbin and Sun Junwei, two economists at HSBC, wrote in a research note. “It is not yet the right time to ease.”
Consumer prices in China were up 6.5 percent in July from the level of a year earlier, well above the government’s target of 4 percent inflation this year. Prime Minister Wen Jiabao acknowledged at the end of June that the target might not be met. Rising food costs are the main culprit as inflation creeps up; consumer prices had been up 6.4 percent in June.
The consumer price increase in the year through July was the largest since June 2008.
Further price increases might be on the way. The National Bureau of Statistics announced in Beijing on Tuesday that producer prices, which are mainly wholesale prices measured at the factory gate, had been 7.5 percent higher in July than a year earlier.
But Jing Ulrich, the chairwoman of China markets at J.P. Morgan, said in a research note that inflation could soon peak in China and then decline. The increase in consumer prices last month was slightly higher than expected while the rise in producer prices was a little smaller than expected.
Economists saw one small hopeful sign in the consumer price data from July. While food prices were up 14.8 percent from the level of a year earlier, nonfood prices were up only 2.9 percent. They had been up 3 percent in June from a year earlier, suggesting that they might have already peaked.
Industrial production, retail sales and fixed asset investment all rose last month at paces that would be enviable and even breathtaking in the West, but that were below expectations for China.
Industrial output rose 14 percent in July from a year earlier. It had been up 15.1 percent in June and had been expected nearly to match that in July, although output growth had been 13 percent to 14 percent in the spring.
Retail sales were up 17.2 percent in July from a year earlier, compared with a gain of 17.7 percent in June that economists had expected to see repeated. Fixed asset investment — like the construction of new office buildings, apartment towers and factories — was up 25.4 percent for the first seven months of this year compared with the same period last year; the year-over-year gain had been 25.6 percent for the first six months of the year, a pace that economists had also expected to see maintained.
China’s last burst of inflation, as the economy overheated in the spring of 2008, ended abruptly when the global financial crisis worsened through the summer and autumn that year and the Chinese export sector slowed precipitously, dragging down the rest of the economy as well.
The authorities responded by rapidly increasing the money supply in early 2009 through currency market interventions and the authorization of heavy lending by state-owned banks. That policy helped rekindle economic growth but sowed the seeds of a new round of inflation that has grown worse over the past year.
High world commodity prices through July have also buoyed food prices in particular.
Tommy Yeh, the sales manager at Beijiale Playground Equipment in Wenzhou, China, said that wages were up 10 percent in the past year while prices for raw materials were also climbing, squeezing profit margins.
“We can only transfer part of these increased costs gradually onto our customers, as our customers have found it hard to accept any major price adjustments,” he said.
By KEITH BRADSHER
Published: August 9, 2011
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